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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] Annual report under Section 13 or 15(d) of the Securities Exchange Act of
1934 for the fiscal year ended December 31, 1997 or
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the transition period from to
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COMMISSION FILE NUMBER: 000-19828
SPATIALIGHT, INC.
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(Name of Small Business Issuer in its Charter)
NEW YORK 16-1363082
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
8-C Commercial Blvd., Novato, California 94949-5759
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(Address of principal executive offices)
415-883-1693
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(Issuer's telephone number)
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act:
Common Stock $.01 par value
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(Title of Class)
NOTE-THE FINANCIAL STATEMENTS INCLUDED IN THIS REPORT ARE NOT AUDITED. THE
COMPANY HAS INSUFFICIENT FUNDS TO ENGAGE AN INDEPENDENT ACCOUNTING FIRM TO
COMPLETE AN AUDIT
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days:
Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [X]
Issuer's revenues for the year ended December 31, 1997 aggregated
$326,207.
The aggregate market value for the Issuer's voting stock held by
non-affiliates of the Issuer based upon the $0.406 per share closing sale
price of the Common Stock on March 12, 1998 as reported on the OTC Bulletin
Board, was approximately $2,403,340. Shares of Common Stock held by each
officer and director and by each person who owns 5% or more of the
outstanding Common Stock have been excluded in that such persons may be
deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
As of March 12, 1998, Registrant had 10,523,996 shares of Common Stock
outstanding.
Transitional Small Business Disclosure Format (check one):
Yes No X
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SPATIALIGHT, INC.
FORM 10-KSB ANNUAL REPORT
TABLE OF CONTENTS
Page
PART I 3
ITEM 1 Description of Business 3
ITEM 2 Description of Property 8
ITEM 3 Legal Proceedings 8
ITEM 4 Submission of Matters to a Vote
of Security Holders 8
PART II 9
ITEM 5 Market for Common Equity and
Related Stockholder Matters 9
ITEM 6 Management's Discussion and Analysis
or Plan of Operation 9
ITEM 7 Financial Statements* 13
ITEM 8 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 23
PART III 24
ITEM 9 Directors, Executive Officers, Promoters and
Control Persons; Compliance with Section 16(a)
of the Exchange Act 25
ITEM 10 Executive Compensation 26
ITEM 11 Security Ownership of Certain Beneficial
Owners and Management 28
ITEM 12 Certain Relationships and Related
Transactions 29
ITEM 13 Exhibits and Reports on Form 8-K 29
*NOTE-THE FINANCIAL STATEMENTS INCLUDED IN THIS REPORT ARE NOT AUDITED. THE
COMPANY HAS INSUFFICIENT FUNDS TO ENGAGE AN INDEPENDENT ACCOUNTING FIRM TO
COMPLETE AN AUDIT. See Management's Discussion and Analysis for a
description of the Company's current financial condition, and the substantial
doubts concerning the Company's ability to continue as a going concern.
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ITEM 1. DESCRIPTION OF BUSINESS
NOTE-THE FINANCIAL STATEMENTS INCLUDED IN THIS REPORT ARE NOT AUDITED. THE
COMPANY HAS INSUFFICIENT FUNDS TO ENGAGE AN INDEPENDENT ACCOUNTING FIRM TO
COMPLETE AN AUDIT. See Management's Discussion and Analysis for a
description of the Company's current financial condition, and the substantial
doubts concerning the Company's ability to continue as a going concern.
INTRODUCTION
SpatiaLight, Inc. ("SpatiaLight" or the "Company") is in the business of
designing, producing and commercializing miniature, high-resolution active
matrix liquid crystal displays ("LCDs"), also known as spatial light
modulators ("SLMs") for computer and video display applications. SLMs are
designed in a manner that can potentially provide high quality images at a
significant reduction in costs over other types of computer and video
displays currently available in the market. The SLMs are designed to be
capable of handling computer and video output at very high speeds, clarity
and contrast. To date, the Company has sold only small volumes of its SLM
product to customers involved in the research and development of applications
for this technology, including computer monitors, head-mounted displays,
optical computing and other projection applications.
The Company has identified a number of potential applications and markets
for products based on its SLM technology, including light-weight large screen
computer monitors, large screen television projection systems (PCTV) and
head-mounted displays for use in defense and aerospace applications and for
personal displays (PDS) and gaming devices. In addition, the Company
believes that its SLM products may have application in optical computing
systems and in high-speed, large-capacity optical data storage systems and
holographic imaging systems.
The address and telephone number of the Company's principal executive
offices are 8-C Commercial Boulevard, Novato, California 94949; (415)
883-1693. The Company was organized under the laws of the State of New York
in 1989 under the name of "Sayett Acquisition Company, Inc."; it subsequently
changed its name to Sayett Group, Inc. and, in June 1996, changed its name
again to SpatiaLight, Inc. Unless the context requires otherwise, all
references herein to SpatiaLight or the Company refer collectively to
SpatiaLight, Inc., SpatiaLight of California and their wholly owned
subsidiaries.
TECHNOLOGY AND PRODUCTS UNDER DEVELOPMENT
The Company's current technology is a third generation 1.1" diagonal,
1024 x 768 pixel, two-dimensional array on 20 micron centers. This product is
not yet available for sale. The Company anticipates this product will be
commercially available in limited quantities for evaluation and development
uses in mid 1998. The Company's SLMs are based on an advanced, proprietary
technology for using liquid crystal directly over the surface of a silicon
chip to convert reflected external light into high-resolution images.
The technology underlying the Company's SLM products relies on the
manipulation of liquid crystal. A liquid crystal display ("LCD") consists of
liquid crystal material between two pieces of glass, and associated
polarizers. Rotating the polarization of the molecules in the liquid crystal
changes the liquid crystal medium from opaque to transparent and can thereby
control the transmission of light. The liquid crystal material has long
tubular molecules with a natural twist. The molecules untwist in response to
an applied electric field. As the molecules untwist, light can pass through
the liquid crystal and its glass encasement. Commonly available projection
panels generally use
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super-twisted nematic ("STN") LCDs. Molecules in STN LCDs have a high degree
of twist and are very responsive to an applied electric field. The Company's
SLMs are designed to use the STN molecules by encasing them directly at the
surface of an integrated circuit on a silicon chip. The chip generates the
polarizing electric fields which can be controlled by and therefore display a
signal from a computer, cable television, a video cassette recorder or other
type of high information content source. The chip has a substrate
manufactured with complimentary metal oxide semiconductor .8 micron processes
that enables high-speed processing of computer and video output with high
contrast and resolution. Display glass is applied to the surface of the
silicon chip with a "spin on" technology to improve flatness. Improved
flatness should enhance display quality and increase display size capability
by reducing defects that would otherwise be magnified, and help maintain
light efficiency to reduce power use.
The Company's SLMs are being designed to compete with other technologies
that produce color LCDs. Additive color techniques require each dot or
picture element ("pixel") on the display screen to be divided into three
sub-pixels. A color filter is applied to each sub-pixel, causing each
sub-pixel to transmit red, green or blue light. The viewer's eye combines
the colored light from the three sub-pixels to create the perception of the
full spectrum of colors. Additive technologies, also referred to as "color
filtered" technologies, include both passive and active matrix approaches.
To date, active matrix has been most commonly accomplished through the use of
thin film transistor technology ("TFT"), in which a transistor is placed on
the glass substrate at each sub-pixel location and is used to control that
sub-pixel. TFT displays are currently manufactured in commercial quantities
by Japanese manufacturers and are relatively expensive. Further, TFT
technology relies on the display being relatively small, because
manufacturing costs and the costs of applying the display increase
dramatically with size.
The Company believes that the technology underlying its SLM products may
provide certain advantages over TFT or other display products or
technologies. The Company's 704 x 512 and the 1024 x 768 product will offer
gray scaling at 256 levels per pixel. The Company's SLMs are expected to
ultimately cost less to manufacture than comparable TFT displays because of
the fundamental chip technology and the placement of the pixel format
directly onto a silicon wafer. Further, Company testing indicates that its
SLMs are capable of being approximately 100 times as light efficient as
currently available TFT displays. The Company's 1024 x 768 product under
development has a 90% fill factor with 20 micron pixel pitch.
Although the Company has demonstrated SLM devices based on its core
technology, the Company has not yet produced any prototype SLM products with
quality and resolution sufficient to satisfy commercial end-use applications.
Delays in development may result in the Company's introduction of its
products later than anticipated, which may have an adverse effect on both the
Company's financial and competitive position. Moreover, there can be no
assurance that the Company will ever be successful in developing or
manufacturing a commercially viable SLM device or any of its proposed display
products. In addition, there is no assurance that an SLM device or any of
the Company's display products will be technically or commercially successful
or that the Company will be able to manufacture or obtain a supplier for
adequate quantities of its SLM devices or any of its display products at
commercially acceptable cost levels or on a timely basis.
The electronic imaging display industry has undergone rapid and
significant technological change. The Company expects the technology to
continue to develop rapidly, and the Company's success will depend
significantly on its ability to attain and maintain a competitive position.
Rapid technological development may result in actual and proposed products or
processes becoming obsolete before the Company recoups a significant portion
of related research and development, acquisition and commercialization costs.
If the Company is successful in the
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development of a commercially viable SLM device, the Company's ability to
compete will depend in part upon the consistency of product quality and
delivery, as well as pricing, technical capability and servicing, in addition
to factors within and outside its control, including the success and timing
of product introductions by the Company and its competitors, product
performance and price, product distribution and customer support. There can
be no assurance that the Company's competitors will not succeed in developing
technologies and products that are equally or more effective than any which
are being developed by the Company or that will render the Company's
technology, SLM devices or display and other products obsolete and
non-competitive.
APPLICATIONS AND MARKETS
The Company believes that current and future SLM products may be
incorporated into a wide variety of monitors, projectors and other light
engines. The Company also believes that suppliers and manufacturers of
display products may desire to license the Company's technology for use in
such end products. The Company does not plan, nor does it have the financial
resources, to develop or market any end products itself. Therefore, the
Company will be completely dependent upon independent third parties for the
development, manufacturing and marketing of such products. No such products
exist today, and the Company does not have commitments from any third party
for such development, manufacturing or marketing. There can be no assurance
that any third party will develop or market a product incorporating the
Company's SLM's. If not, there will be no market for the Company's SLM's.
The Company has established a relationship with a large Asian wafer
fabrication manufacturer to supply production volumes of the silicon wafer.
The Company has also established informal arrangements with suppliers of
light engine components, including lamps, screen materials and lenses. The
Company believes these relationships are important to its ability to succeed
because they can enable the Company to demonstrate potential application
solutions to customers. The failure to establish relationships with
suppliers of light engine components and other manufacturers could make it
more difficult for the Company to gain market acceptance for its products.
To encourage manufacturers to design products that integrate the Company's
SLMs, the Company intends to offer prototypes at low cost for evaluation and
design into products. However, because many manufacturers are unfamiliar
with reflective technology displays, and because of their limited supply, the
Company may experience difficulty in convincing manufacturers to use its SLMs.
MARKETING, SALES AND DISTRIBUTION
The Company currently employs one full-time marketing/sales specialist.
The Company intends to form alliances with corporate partners for the
marketing and distribution of certain of its anticipated display products.
There can be no assurance that the Company will be successful in forming and
maintaining such alliances or that the Company's partners will devote
adequate resources to successfully market and distribute these anticipated
products. There can be no assurance that the Company will be able to attract
and retain qualified marketing and sales personnel, that the Company will be
able to enter into satisfactory agreements with marketing partners, or that
the Company or its marketing partners will be successful in gaining market
acceptance for its anticipated products.
MANUFACTURING AND SUPPLY
The Company currently engages outside manufacturers to produce its SLM
devices, and the Company has no experience manufacturing SLM devices or
display products. The Company's facility is designed principally for
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research and development and small-scale assembly and inventory storage.
Final assembly and testing of the SLM product is conducted by Company
personnel prior to shipment. The Company has established supplier
relationships with both a low volume and a high volume LCD filling processor.
The Company does not have a written contract with either such supplier, and
accordingly, either of them may discontinue providing LCD components to the
Company at any time. Any such termination of supply could have a material
adverse effect on the Company's ability to meet its commitments to customers
while the Company identified and qualified a replacement supplier.
The Company is negotiating with several manufacturers for establishment
of full-scale integrated manufacturing capacity for its SLM devices and has
reached an agreement with one Asian manufacturer for fabrication of silicon
wafers. The Company has also selected a manufacturer for high volume liquid
crystal filling manufacturing and this manufacturer will assist the company
in characterization of the liquid crystal process and final selection of LCD
manufacturing materials and processes. In the event such manufacturer
establishes a full-scale integrated manufacturing capability, the Company
could become dependent on such manufacturer for the manufacture of SLM
devices. The termination or cancellation of the Company's agreement with the
manufacturer could adversely affect the Company's ability to manufacture its
products. In such event, the Company plans to establish a domestic
alternative manufacturing relationship.
The Company is establishing a low volume development LCD manufacturing
capability. There can be no assurance that the Company would be able to
establish such a relationship on acceptable terms or develop its own
manufacturing capability. In any event the time required to establish such a
substitute relationship or capability could substantially delay the
commercialization of the Company's SLM devices and display products, which,
in turn, could have a substantial adverse impact on the Company's results of
operations and financial condition.
COMPETITION
The active matrix LCD market has been dominated by Japanese manufacturers
such as Sharp, Hitachi, Seiko-Epson, Sanyo and Toshiba (in partnership with
IBM). These manufacturers, however, have concentrated on larger format,
eight to ten inch displays used in portable computers. Other companies such
as S-Vision, 3-Five Systems, Kopin Corporation, OIS Ovonics, Texas
Instruments and Motif (a Motorola and InFocus Systems joint venture) have
attempted to design and produce small format LCDs and SLMs with comparable
functionality to that of the Company's SLMs. Attempts at commercialization of
the small format display devices have met with limited success to date.
The electronic imaging display industry has been characterized by rapid
and significant technological advances. There can be no assurance that the
Company's SLM devices and display products will be reflective of such
advances or that the Company will have sufficient funds to invest in new
technologies or products or processes. A number of companies in the United
States assemble workstation monitors using LCDs and cathode-ray tubes
("CRTs") purchased from Japan. A number of Japanese companies build monitors
around their LCDs and CRTs. Korean companies are also entering the LCD and
CRT monitor market. Development of improved high-definition LCDs and CRTs
continues to receive significant attention by these and other companies.
Although the Company believes that its SLM products have the capability to
improve LCD performance beyond that of commercially available LCD- and
CRT-based display products, there is no assurance that manufacturers of LCDs
or CRTs will not develop further improvements of LCD or CRT technology that
would eliminate or diminish the Company's anticipated advantage. In
addition, numerous competitors have substantially greater financial,
technical and other resources than the Company. The Company may face an
aggressive, well financed competitive response that may include
misappropriation of the Company's intellectual property or predatory pricing.
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PATENTS AND INTELLECTUAL PROPERTY
The Company's ability to compete effectively with other companies will
depend, in part, on the ability of the Company to maintain the proprietary
nature of its technologies. The Company has been awarded three U.S. Patents
and has eight other patent applications pending. There can be no assurance
as to the degree of protection offered by these patents, or as to the
likelihood that pending patents will be issued. Furthermore, the Company has
applied for one foreign patent. There can be no assurance that competitors,
in both the United States and foreign countries, many of which have
substantially greater resources and have made substantial investments in
competing technologies, will not seek to apply for and obtain patents that
will prevent, limit or interfere with the Company's ability to make and sell
its products or intentionally infringe the Company's patents. The defense
and prosecution of patent suits is both costly and time-consuming, even if
the outcome is favorable to the Company. This is particularly true in
foreign countries. In addition, there is an inherent unpredictability
regarding obtaining and enforcing patents in foreign countries. An adverse
outcome in the defense of a patent suit could subject the Company to
significant liabilities to third parties, require disputed rights to be
licensed from third parties, or require the Company to cease selling its
products. The Company also relies on unpatented proprietary technology and
there can be no assurance that others may not independently develop the same
or similar technology or otherwise obtain access to the Company's proprietary
technology. To protect its rights in these areas, the Company requires all
employees and most consultants, advisors and collaborators to enter into
confidentiality agreements. There can be no assurance, however, that these
agreements will provide meaningful protection for the Company's trade
secrets, know-how or other proprietary information in the event of any
unauthorized use, misappropriation or disclosure of such trade secrets,
know-how or other proprietary information. To date, the Company has no
experience in enforcing its confidentiality agreements.
RESEARCH AND DEVELOPMENT
The Company incurred research and development expenses of approximately
$1,843,000 in 1997 and $265,000 in 1996. Research and development expenses
represent costs incurred, primarily for personnel related, and for the
experimental materials for the design and development of new products. The
Company believes that the development of new products will be required to
allow it to compete effectively and to achieve future revenues. The Company
currently has 13 full time employees whose duties include research and
development. The Company intends to continue its product enhancement and
development programs, focusing on increasing the display resolution and
finalizing color capabilities and liquid crystal filling manufacturing
processes. The Company believes that such enhancements and new products will
be required to exploit future markets for large screen monitors, high
definition television and head mount displays.
EMPLOYEES
As of December 31, 1997, the Company had 15 full-time and 2 part-time
employees. Employment is divided among two functional areas with 13 in
engineering and 4 in finance and administration. Employees are not
represented by any collective bargaining organizations. The Company
considers its relations with its employees to be good.
The Company is dependent upon its key scientific and management
personnel including its Chief Executive Officer, William E. Hollis and L.
John Loomis, President and COO. During 1997
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the company hired several additional technical and scientific staff members
to complement and reduce the Company's dependence on any individual employee.
As of March 21, 1998 Mr. Irwin, former Vice President of Engineering,
resigned as an officer and employee and his role with the Company has changed
to a consultant technology advisory capacity. The Company's success will
always depend on its ability to attract and retain highly qualified
scientific, marketing, manufacturing, financial and other key management
personnel. The Company faces competition for such personnel and there can be
no assurance that the Company will be able to attract or retain such
personnel.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's headquarters are located at 8-C Commercial Drive and 5
Commercial Drive, Novato, California. Approximately 5,800 square feet of
office space is leased through April 1998. The Company anticipates that this
lease will be extended for another 12 months. The Company believes that its
current facilities will be sufficient for its needs for at least the next
year.
ITEM 3. LEGAL PROCEEDINGS.
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the security holders during the
Company's fourth quarter.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The common stock of the Company has been traded in the over-the-counter
market since the Company's initial public offering on February 5, 1992.
Until April 1, 1997 the common stock was listed on the NASDAQ SmallCap Market
under the symbol "SLHT". Nasdaq delisted the Company from the NASDAQ SmallCap
Market effective April 2, 1997 because the Company does not meet the
$2,000,000 minimum total asset requirement for continued listing. Trading in
the Company's common stock after April 2, 1997 has been conducted in the
over-the-counter market in the so-called "pink sheets" or the NASD's
"Electronic Bulletin Board". As a result of the delisting the liquidity of
the Company's securities could be impaired, not only in the numbers of
securities which could be bought and sold, but also through delays in the
timing of transactions, reduction in security analysts' and news media
coverage of the Company, and lower prices for the Company's securities than
might otherwise be obtained. In November 1997 the Company changed its stock
symbol to "HDTV".
The following table sets forth, for the calendar quarters indicated, the
range of high and low quotations for the common stock, as reported by the
National Association of Securities Dealers Automated Quotation System.
HDTV - COMMON STOCK
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<CAPTION>
1997 1996
High Bid Low Bid High Bid Low Bid
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<S> <C> <C> <C> <C>
First Quarter (January-March) 1 1/2 5/16 1 1/2 7/32
Second Quarter (April-June) 1 11/64 61/64 1 5/8 5/8
Third Quarter (July-September) 1 1/4 57/64 1 1/4 11/16
Fourth Quarter (October-December) 1 1/8 59/64 7/8 13/32
</TABLE>
For a recent reported quotation for the Company's common stock, see the
cover page of this Form 10-KSB. The quotations listed above reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may
not represent actual transactions.
As of March 12, 1998, there were approximately 2500 holders of record of
the common shares of the Company. The common stock represents the only class
of securities outstanding as of this filing.
To date, the Company has not paid a dividend on its common stock. The
payment of future dividends is subject to the Company's earnings and
financial position and such other factors, including contractual
restrictions, as the Board of Directors may deem relevant and it is unlikely
that dividends will be paid in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company operations are severely constrained by its lack of financing
and inadequate working capital. The Company continues to experience negative
cash flows, and net operating losses. The Company's operations in recent
months have
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been funded by a series of relatively small loans, some secured by
substantially all the assets of the Company. Most of these loans have been
provided by persons affiliated with major shareholders of the Company or with
management. These loan amounts have been adequate for the Company to meet
payroll and certain other imperative obligations, but various accounts
payable and other obligations are past due. The Company is in default under
certain of the loans made to finance its operations, and is negotiating to
extend the due dates. The Company continues its efforts to locate sources of
financing. There can be no assurance that additional loans or any other
financing will be available to the Company. FOR THIS REASON, THERE IS
UNCERTAINTY WHETHER THE COMPANY CAN CONTINUE AS A GOING CONCERN. See Note 2
of Notes to Consolidated Financial Statements.
THE FINANCIAL STATEMENTS INCLUDED IN THIS REPORT ARE NOT AUDITED. THE
COMPANY HAS INSUFFICIENT FUNDS TO ENGAGE AN INDEPENDENT ACCOUNTING FIRM TO
COMPLETE AN AUDIT.
The statements in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" that relate to future plans, events, or
performance are forward-looking statements which involve risks and
uncertainties. Actual results, events, or performance may differ materially
from those anticipated in these forward-looking statements as a result of a
variety of factors, including those discussed throughout "Item 1 -
Description of Business" and elsewhere in this Annual Report on Form 10-KSB.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. The Company undertakes no
obligation to publicly release the result of any revisions to these
forward-looking statements that may be needed to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
NET REVENUES. The Company's net revenues were $326,207 and $176,100 in
1997 and 1996 respectively. These amounts are comprised of sales of a small
number of units of the Company's initial SLM device, in addition to revenues
from non-recurring engineering contracts.
OPERATING EXPENSES. Operating expenses during 1997 and 1996 were
$3,616,677 and $1,028,717, respectively. The substantial increase in
operating expenses from 1996 to 1997 was principally due to the increase in
staffing and infrastructure support costs, and a litigation settlement
expense of $300,000 as well as the acquisition at a cost of approximately
$420,000 of the remaining minority interest of SOC. This expense was
classified as research and development.
Costs of sales represent product costs associated with the production of
prototype SLMs. Costs of sales were $1,000 and $141,290 in 1997 and 1996,
respectively. The decrease was due to the lower volume of SLM sales during
1997.
Selling, general and administrative costs were $1,775,006 and $763,575 in
1997 and 1996, respectively. The increase of 132% from 1996 levels reflects
the Company's initial investment in marketing the SLMs as it continued the
transition from research and development company to an operating company.
Also as a result of this transition, and of the acquisition of the remaining
20% of SpatiaLight of California, research and development expenses in the
year ended December 31, 1997 were $1,841,671, which represents a 595%
increase from research and development expenses of $269,142 in the year ended
December 31, 1996.
Interest income was $18,821 and $63,776 in 1997 and 1996, respectively.
The decrease in interest income in 1997 was principally due to lack of
investment activity during the year.
Other expenses were $12,118 and $13,252 in 1997 and 1996, respectively.
On December 29, 1995 the Company sold Sayett Technology, Inc. (STI), a
wholly owned subsidiary, to former management members of the Company for
$300,000 in the form of a note receivable. In 1996, the Company received
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$300,000 in the form of note receivable. In 1996, the Company received
$51,526 in cash and $15,069 in furniture and fixtures toward payment of this
note receivable. In the third quarter of 1996 the Company wrote down the note
by $121,702 based on their assessment of collectability. Based on events in
the fourth quarter of 1996, the Company wrote off the remaining balance of
$111,703. The total write-off of $233,405 has been shown as a bad debt
write-off.
LOSS FROM CONTINUING OPERATIONS. Losses from continuing operations were
$3,283,274 and $1,178,738 in 1997 and 1996, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company is experiencing negative cash flow from operations,
resulting in the need to fund ongoing operations from financing activities.
The future existence and profitability of the Company is dependent upon its
ability to obtain additional funds to finance operations and expand
operations in an effort to achieve profitability from operations. No
assurance can be given that the Company's business will ultimately generate
sufficient revenue to fund the Company's operations on a continuing basis.
The matters discussed below, among others, may indicate that the Company will
be unable to continue as a going concern for a reasonable period of time.
Management continues to seek and explore opportunities for the Company
to obtain significant capital financing. There have been a number of
potential sources for investment contacted to date, however none of them has
yet resulted in funding (see footnote 5 of the unaudited financial
statements).
As of December 31, 1997, the Company had $415,624 in cash and cash
equivalents. Accounts receivable at December 31, 1997 totaled $3,383 and
represented primarily amounts due on SLMs shipped in the fourth quarter. The
Company's net working capital at December 31, 1997 was approximately
($946,000).
Net cash used by operating activities totaled $1,677,037 and $904,354 in
1997 and 1996, respectively. Net cash provided by investing and financing
activities in 1997 was approximately $767,000, principally resulting from the
issuance of convertible debentures. Net cash provided by investing and
financing activities in 1996 was approximately $1,500,000, principally
resulting from a private placement of the Company's common stock.
As of December 31, 1997, the Company had an accumulated deficit of
$10,747,355. The Company has realized significant losses in the past and
expects that these losses will continue at least through 1998. It is likely
that the Company will have quarterly and annual losses in 1998 and beyond.
The Company has generated limited revenues and no profits from operations.
The development, commercialization and marketing of the Company's products
will require substantial expenditures for the foreseeable future.
Consequently, the Company may continue to operate at a loss for the
foreseeable future and there can be no assurance that the Company's business
will operate on a profitable basis.
Most of the Company's revenue to date has been derived from research and
development contracts and limited sales of its SLM devices. Although the
Company has demonstrated SLM devices based on its core technology, the
Company has not yet produced any prototype SLM products with quality and
resolution sufficient to satisfy commercial end-use applications. The
Company recently entered into a contract to produce an engineering prototype
of a consumer product for mass production. However, further development and
testing will be necessary before this product or the Company's other proposed
products will be available for commercial end-use applications. Delays in
development may result in the Company's introduction of its products later
than anticipated, which may have an adverse effect on both the Company's
11
<PAGE>
financial and competitive position. Moreover, there can be no assurance that
the Company will ever be successful in developing or manufacturing a
commercially viable SLM device or any of its proposed display products. In
addition, there is no assurance that an SLM device or any of the Company's
display products will be technically or commercially successful or that the
Company will be able to manufacturer adequate quantities of its SLM devices
or any of its display products at commercially acceptable cost levels or on a
timely basis.
12
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
NOTE - THE FINANCIAL STATEMENTS INCLUDED IN THIS REPORT ARE NOT AUDITED. THE
COMPANY HAS INSUFFICIENT FUNDS TO PAY FOR THE 1996 AUDIT OR TO ENGAGE AN
INDEPENDENT ACCOUNTING FIRM TO COMPLETE AN AUDIT FOR FISCAL YEAR 1997. See
Management's Discussion and Analysis for a description of the Company's
current financial condition, and the substantial doubts concerning the
Company's ability to continue as a going concern. Furthermore, the Company
believes that its current financial condition has deteriorated such that an
independent accounting firm would not be able to render an opinion on
financial statements contained herein.
13
<PAGE>
SPATIALIGHT, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
DECEMBER 31, 1997 AND 1996
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 415,624 $ 1,324,398
Accounts receivable 3,383 40,021
Inventories 15,000 75,401
Prepaid expenses and other 27,253 11,911
------------ -----------
Total current assets 461,260 1,451,731
Property and equipment, net 217,984 68,817
Other assets 27,701 12,877
------------ -----------
Total assets $ 706,945 $ 1,533,425
------------ -----------
------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $796,660 $94,554
Short-term notes payable 932,479 --
Accrued expenses and other current liabilities 127,835 108,581
------------ -----------
Total current liabilities 1,856,974 203,135
Noncurrent liabilities
Long term capital lease obligations 53,480 --
------------ -----------
Total liabilities 1,910,454 203,135
Commitments and contigencies
Stockholders' equity
Common stock, $.01 par value:
20,000,000 shares authorized;
9,200,751 shares in 1997, and
8,533,191 shares in 1996 85,811 79,832
Additional paid-in capital 9,458,035 8,714,539
Accumulated deficit (10,747,355) (7,464,081)
------------ -----------
Total stockholders' equity (1,203,509) 1,330,290
------------ -----------
Total liabilities and stockholders' equity $706,945 $1,533,425
------------ -----------
------------ -----------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
14
<PAGE>
SPATIALIGHT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Revenues:
Contract revenues $ 325,000 $ 70,000
Sales 1,207 106,100
----------- -----------
Total revenues 326,207 176,100
Cost of sales 1,000 141,290
----------- -----------
Gross profit 325,207 34,810
Selling, general and administrative expenses 1,775,006 763,575
Research and development expenses 1,841,671 265,142
----------- -----------
Total operating expenses 3,616,677 1,028,717
Operating Loss (3,291,470) (993,907)
Other income (expense):
Interest income 18,821 63,776
Other expenses (12,118) (13,252)
Write-down of note receivable -- (233,405)
----------- -----------
Total other expense 6,703 (182,881)
----------- -----------
Loss from operations before income taxes (3,284,767) (1,176,788)
Income taxes 1,493 (1,950)
----------- -----------
Net loss $(3,283,274) $(1,178,738)
----------- -----------
----------- -----------
Net loss per share (0.38) (0.16)
----------- -----------
----------- -----------
Shares used in computing net loss per share 8,675,416 7,230,630
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
15
<PAGE>
SPATIALIGHT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON STOCK PAID-IN ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance January 1, 1996 6,398,191 $63,532 $7,205,602 $ (6,285,343) $ 983,791
Issuance of common stock, net 2,135,000 16,300 1,508,937 -- 1,525,237
Net loss -- -- -- (1,178,738) (1,178,738)
--------- ------- ---------- ------------ -----------
Balance December 31, 1996 8,533,191 79,832 8,714,539 (7,464,081) 1,330,290
--------- ------- ---------- ------------ -----------
Issuance of common stock, net 667,920 5,979 443,496 -- 449,475
Issuance of warrants -- -- 300,000 -- 300,000
Net loss -- -- -- (3,283,274) (3,283,274)
--------- ------- ---------- ------------ -----------
Balance December 31, 1997 9,201,111 $85,811 $ 743,496 $(10,747,355) $(1,203,509)
--------- ------- ---------- ------------ -----------
--------- ------- ---------- ------------ -----------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
16
<PAGE>
SPATIALIGHT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(3,283,274) $(1,178,738)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 59,126 24,358
Non-cash acquisition of minority interest of SOC 421,376 --
Non-cash legal settlement 300,000
Write-down of note receivable -- 233,405
Non-cash compensation 37,501 --
Changes in assets and liabilities:
Accounts receivable 36,638 (40,021)
Inventories 60,401 (75,401)
Prepaid expenses and other current assets (15,342) (6,107)
Other assets (14,824) (12,877)
Accounts payable 702,106 94,554
Current portion capital lease obligation 28,523
Accrued expenses and other current liabilities (9,268) 56,473
----------- -----------
Net cash used by operating activities (1,677,037) (904,354)
Cash flows from investing activities:
Purchase of short-term investments (1,172,900)
Proceeds from sales of short-term investments 1,172,900
Capital expenditures (208,292) (26,311)
Purchase of equity investment --
Payments received on notes receivable 51,526
Net proceeds from acquisitions/disposals --
----------- -----------
Net cash provided (used) by investing activities (208,292) 25,215
----------- -----------
Cash flows from financing activities:
Common stock issuance costs (9,402) 1,525,237
Long term capital lease obligation 53,478 --
Issuance of notes payable 932,479 --
----------- -----------
Net cash provided by financing activities 976,555 1,525,237
Net (decrease) increase cash and cash equivalents (908,774) 646,098
Cash and cash equivalents, beginning of year 1,324,398 678,300
----------- -----------
Cash and cash equivalents, end of year $ 415,624 $ 1,324,398
----------- -----------
----------- -----------
Supplemental disclosure of noncash investing and
financing activities:
Furniture received as payment on notes receivable -- $ 15,069
-----------
Common stock issued in conjunction with acquisition of
remaining minority interest of SOC 421,376 --
-----------
Common stock issued as compensation to employees 21,251 --
-----------
Common stock issued as payment for services 16,250
-----------
Warrants to purchase common stock issued as legal settlement 300,000 --
-----------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
17
<PAGE>
SPATIALIGHT, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
- -----------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS
SpatiaLight, Inc. and its subsidiary (the Company) develops, designs,
manufactures, and markets high content information display system
components for the optical computing, computer monitoring/projection,
holography, and multimedia industries.
2. GOING CONCERN UNCERTAINTY
GENERAL
The Company's operations are severely constrained by its lack of financing
and inadequate working capital. The Company continues to experience
negative cash flows, and net operating losses. The Company's operations
in recent months have been funded by a series of relatively small loans,
some secured by substantially all the assets of the Company. Most of
these loans have been provided by persons affiliated with major
shareholders of the Company or with management. These loan amounts have
been adequate for the Company to meet payroll and certain other imperative
obligations, but various accounts payable and other obligations are past
due. The Company is in default under certain of the loans made to finance
its operations, and is negotiating to extend the due dates. The Company
continues its efforts to locate sources of financing. There can be no
assurance that additional loans or any other financing will be available
to the Company. FOR THIS REASON, THERE IS UNCERTAINTY WHETHER THE COMPANY
CAN CONTINUE AS A GOING CONCERN.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. This
contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. The Company incurred significant
operating losses in each of the last five fiscal years and incurred a net
loss in fiscal 1997 of $3,283,274. Additionally, as of December 31, 1997
the Company's accumulated deficit totaled $10,747,355. The Company has
generated limited revenues to date and the development, commercialization
and marketing of the Company's products will require substantial
expenditures in the foreseeable future. The successful completion of the
Company's development program and ultimately, the attainment of profitable
operations, is dependent upon future events. These events include the
obtaining adequate financing to fulfill its development activities,
successful launching of the commercial production and distribution of its
products and achieving a level of sales adequate to support the Company's
cost structure. These matters discussed above, among others, may indicate
that the Company will be unable to continue as a going concern for a
reasonable period of time.
The consolidated financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset
amounts or the amounts and classification of liabilities that might be
necessary should the Company be unable to continue as a going concern.
In an effort to improve operating performance, the Company has been and
will be implementing certain programs and strategies in 1997. These
strategies include:
- Raising of additional capital.
- Outsourcing of all manufacturing activities, which will be monitored by
Company's manufacturing/quality control engineering staff.
18
<PAGE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of SpatiaLight, Inc. (SI), and its wholly owned
subsidiary SpatiaLight of California (SOC). All inter-company accounts
and transactions have been eliminated in consolidation.
ESTIMATES - The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires that
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
INVENTORIES - Inventories are stated at the lower of cost or market, cost
being determined on a first-in, first-out (FIFO) basis.
PROPERTY AND EQUIPMENT - Property and equipment are recorded at cost while
repairs and maintenance costs are expensed in the period incurred.
Depreciation and amortization of property and equipment is calculated on a
straight-line basis over the estimated useful lives of the assets,
generally 3 to 5 years.
REVENUE RECOGNITION - Revenue is generally recognized at the time product
is shipped, or when engineering projects are completed.
INCOME TAXES - The Company uses the asset and liability method to
account for income taxes, in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes."
NET LOSS PER COMMON SHARE - Net loss per common share for 1997 and 1996 is
based on the weighted average number of common shares outstanding during
the year; stock options and warrants were not included since their effect
would be anti-dilutive.
RESEARCH AND DEVELOPMENT - Research and development costs are charged to
expense when incurred.
CASH EQUIVALENTS - Cash equivalents include money market securities stated
at cost, which approximate market value, purchased with original
maturities of three months or less.
STOCK-BASED COMPENSATION - The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with APB No. 25,
"Accounting for Stock Issued to Employees."
4. ISSUANCE OF COMMON STOCK
On October 31, 1997, the Company acquired the 20% of SpatiaLight of
California that it did not previously own, in exchange for 628,920 shares
of the Company's common stock. The acquisition was recorded as research
and development expense. On July 11, 1996 the Company sold 1,585,000
shares of its common stock to a private investor group at $1.125 per
share, or $1,783,125 in gross proceeds. In conjunction with the sale of
common stock, the Company also issued warrants to purchase an additional
1,585,000 shares of the Company's common stock, exercisable at any time
prior to July 15, 2001, at an exercise price of $1.00 per share before
July 15, 1997, $1.25 through July 1999 and $1.50 thereafter. Net proceeds
received by the Company related to this placement were $1,525,237.
19
<PAGE>
On November 11, 1996, in connection with the approval by the
above-mentioned investors of a future additional offering of
common stock (relating to the Company's planned stock for stock exchange
to acquire the remaining 20% of common shares of SOC owned by the
original owners), the Company entered into an Amendment Agreement which
repriced the July 11, 1996 sale of common stock from $1.125 per share to
$.8352 per share and issued an additional 550,000 shares to the
investors.
5. NOTES PAYABLE
Short-term notes payable at December 31, 1997 consist of the following:
A line of credit for $250,000 under a credit agreement with a bank under
which it can borrow up to an amount equal to the Certificate of Deposit,
up to a maximum of $750,000. The purpose of the line of credit is to
facilitate working capital. Under the terms of the credit agreement,
interest is accrued at the greater of Prime or the certificate of deposit
interest rate plus 2 percent. The line of credit expires on June 8, 1998.
Short-term notes of $232,479, including accrued interest. The borrowings
were made to provide working capital, and accrue interest at 10-12% per
annum. Of the total, $80,000 is due on demand, and the balance was due on
February 28, 1998. The Company is in default on the notes and is
negotiating to extend the due dates.
In conjunction with a private placement, convertible debentures with a
principal amount of $450,000, were issued to purchasers outside the United
States. The debentures have a two year term, carry a 3% interest rate and
are convertible into the Company's common stock at 120% of the five day
average closing bid price for the stock at the issuance date or, if lower,
75% of the five day average closing bid price of the stock at the time the
debt is converted. Net of fees and expenses, the Company received
$387,000 from this first placement. The debentures are recorded in
short-term liabilities. Subsequent to December 31, 1997, $350,750 of the
original debentures were converted to 961,364 shares of common stock.
6. PROPERTY AND EQUIPMENT
Property and equipment as of December 31 consist of the following:
<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
Office furniture and fixtures $265,560 $ 94,885
Machinery and equipment 105,965 62,263
-------- --------
371,526 157,148
Less accumulated depreciation and amortization 153,542 88,331
-------- --------
$217,984 $ 68,817
-------- --------
-------- --------
</TABLE>
7. INCOME TAXES
The income tax provision including the effect of continuing and
discontinued operations in the accompanying consolidated statements of
operations is as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Current payable, primarily state taxes $(1,493) $(1,950)
------- -------
</TABLE>
20
<PAGE>
8. STOCKHOLDERS' EQUITY
STOCK OPTION PLAN - The Company has various Stock Option Plans primarily
for employees and directors. The Plans authorize the issuance of options
to purchase up to 2,010,000 shares of the Company's common stock. The
Plans provide for options which may be issued as nonqualified or qualified
incentive stock options under Section 422A of the Internal Revenue Code of
1986, as amended.
Under the 1991 and 1993 Employee Stock Option Plans, the Company may grant
options to purchase up to 1,915,000 shares of common stock to employees at
prices not less than the fair market value at the date of grant for
incentive stock options and not less than 85% of fair market value for
non-statutory stock options. These options expire 10 years from the date
of grant and become exercisable 50% in year one and 50% in year two.
Under the 1993 Non-Employee Directors' Stock Option Plan non-employee
directors of the Company are granted options to purchase 25,000 shares of
common stock at the fair market value at the date of grant each year that
such person remains a director of the Company. These options expire 10
years from the date of grant and become fully exercisable after 2 years.
The total number of shares authorized under the plan is 85,000.
Options under the Plans are granted at the discretion of the Board of
Directors. All options granted through 1997 have been granted at fair
market value.
The following is a status of the options under the Plans and a summary of
the changes in options outstanding during 1997 and 1996:
<TABLE>
<CAPTION>
Number of Weighted
Shares Exercised Avg. Price
---------------- ----------
<S> <C> <C>
Outstanding, January 1, 1996 210,000 $2.42
Options granted 165,000 1.06
Options cancelled (10,000) 1.19
--------- -----
Outstanding, December 31, 1996 365,000 1.84
Options granted 1,375,000 0.79
Options canceled (355,000) 1.84
---------
Outstanding, December 31, 1997 1,385,000 $0.79
</TABLE>
Options exercisable as of December 31, 1997 and 1996 totaled
approximately 10,000 and 170,000 options at a weighted average exercise
price of $3.00 and $1.81 respectively.
Additional information regarding options outstanding as of December 31,
1997 is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------- ----------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life (Yrs) Price Exercisable Price
- --------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$2.00-$3.00 10,000 5.3 $3.00 10,000 $3.00
$1.00-$2.00 320,000 9.6 $1.25 0 $0.00
$0.875-$1.00 1,055,000 9.3 $0.65 0 $0.00
--------- ------
1,385,000 10,000
--------- ------
--------- ------
</TABLE>
21
<PAGE>
At December 31, 1997, 610,000 shares and 15,000 shares were available for
future grants under the Employee Stock Option Plan and Non-Employee
Directors Plan, respectively.
ADDITIONAL STOCK PLAN INFORMATION
Statement of Financial Accounting Standards No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION, (SFAS 123) requires the disclosure of pro forma
net loss and loss per share had the Company adopted the fair value method
as of the beginning of fiscal 1995. Under SFAS 123, the fair value of
stock-based awards to employees is calculated through the use of option
pricing models, even though such models were developed to estimate the
fair value of freely tradable, fully transferable options without vesting
restrictions, which significantly differ from the Company's stock option
awards. These models also require subjective assumptions, including
future stock price volatility and expected time to exercise, which
greatly affect the calculated values.
On February 25, 1997 the Company repriced the exercise price and extended
vesting period of all 365,000 outstanding options (originally granted
from $0.875 to $3.13) to $0.625.
9. MAJOR CUSTOMERS
The Company's revenue for 1997 of $325,000 represented a single contract
for engineering services. Of the 1996 revenue, approximately 80% was
accounted for by two of the Company's four customers.
10. COMMITMENTS AND CONTINGENCIES
The Company has various operating lease arrangements for equipment and
office space. Total rent expense under operating leases amounted to
approximately $60,000 and $32,000 in 1997 and 1996, respectively. The
office lease expires on April 30, 1998 and future minimum lease payments
under non-cancelable operating leases are $68,000. The Company expects
the lease to be renewed for one year.
CONTINGENT PAYMENT CONTRACTS - Prior to December 31, 1994, SOC entered
into certain contracts with service providers and with several employees
to lease space and obtain research, development, marketing, legal and
other services. These contracts provide for payments to these service
providers and employees as SOC achieves specified cumulative unit sales
or revenue levels. There are no required payments under the contracts if
minimum cumulative unit sales or revenue levels are not achieved. The
contracts do not have expiration dates. As of December 31, 1996 and
1995, services under these contracts have been provided to the Company;
however, no amounts have been accrued as a liability because achievement
of the minimum required cumulative unit sales or revenue levels is not
considered probable as of that date. As of December 31, 1996, the
maximum potential liability of the Company under these contracts is
approximately $1,100,000.
22
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable
23
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
Name Age Position(s)
---- --- -----------
<S> <C> <C>
Michael H. Burney............... 45 Director
William E. Hollis............... 59 Director, Chairman of the Board, Chief
Executive Officer
Asa W. Lanum.................... 50 DIRECTOR
L. John Loomis.................. 46 Director, President & Chief Operating
Officer
Lawrence J. Matteson............ 58 Director
Robert A. Olins................. 41 DIRECTOR
</TABLE>
All Directors serve for a term of one year and until their successors
are duly elected. All officers serve at the discretion of the Board of
Directors.
DESCRIPTION OF BUSINESS EXPERIENCE.
MICHAEL H. BURNEY, Director, has been Chairman and CEO of Chronomotion
Imaging Applications, Inc. in Santa Monica, California since its founding in
1993. Mr Burney was a Vice President with Packard Bell Electronics, Inc. in
West Lake Village, California from 1990 through 1995 and was a consultant for
Arthur Young & Company and Ernst & Young from 1987 through 1990. After
receiving a Bachelor of Arts from Pomona College in Claremont, California in
1975, Mr. Burney received a Master of Business Administration in 1986 from
the University of Southern California at Los Angeles. Mr. Burney is the
recipient of two U.S. patents in association with his current company.
WILLIAM E. HOLLIS, joined the Company in December 1994 as President and
Chief Executive Officer. During 1994, prior to joining the Company, Mr.
Hollis was a management consultant specializing in assisting small businesses
to improve operations. In December 1992 he joined PSC, Inc., a bar code
scanner manufacturer, as its Chief Financial Officer, leaving the company in
January 1994. From September 1988, to November 1992, he served as Chief
Financial Officer and co-founder of MATX, Inc., a spin-off of the Xerox
Corporation. Prior to AMTX, Mr. Hollis held various high level financial
planning and analysis positions at Xerox for 18 years. Mr. Hollis holds a
B.S. degree from Drake University.
ASA W. LANUM, Director, has served as a Director since February 6, 1998.
Mr. Lanum has been a principal of the CTO Group since February 1995. CTO
Group is a consulting organization providing strategic marketing, product and
technology advise to end users and systems vendors. Previously Mr. Lanum
held the position of Senior Vice President, Chief Technology Officer for Open
Vision Technologies from 1992 to January 1995.
L. JOHN LOOMIS joined the Company in February 1997 as Chief Operating
Officer. Mr. Loomis supervises design engineering, manufacturing and
production. From 1995 to 1997, Mr. Loomis was the Director, Creative and
Software Development for Compaq Computer Corporation. He created and managed
the Presario Platform Software Engineering group. Prior to Compaq, Mr.
Loomis was President and COO for Motion Works Corporation from 1994 to 1995.
From 1992 to 1994 Mr. Loomis held the position of Director, Core Technologies
and Chief Architect for Open Vision Technologies, Inc. Mr. Loomis earned his
undergraduate business degree from the University of Wisconsin and completed
the Presidential MBA program at Pepperdine University.
24
<PAGE>
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT. (cont.)
LAWRENCE J. MATTESON has served as Chairman of the Board since May 23,
1995. He has been a Director since October 1991 and currently he is an
executive professor of business policy at the William E. Simon Graduate
School of Business Administration, University of Rochester. Mr. Matteson was
Senior Vice President and General Manager, Electronic Imaging for Kodak until
December 1, 1991. Mr. Matteson began his career with Kodak in 1965 as a
research engineer and has worked at Kodak in various positions continuously
from that date until December 1, 1991. He holds degrees in engineering and
an M.B.A. from the University of Rochester Graduate School of Business.
ROBERT A. OLINS, Director, has served as Director since February 20,
1998. Mr. Olins has served as President of Argyle Capital Management
Corporation during the past five years Argyle Capital Management Corporation
is a private investment advisory company.
25
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid for the years 1995,
1996 and 1997 to the Company's Chief Executive Officer and executive officers
who earned in excess of $100,000 in any one year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Securities
Underlying
Name and Principal Position Year Salary Options/SARs(#)
--------------------------- ---- ------ ---------------
<S> <C> <C> <C>
William E. Hollis 1997 $121,154 420,000
Chairman & CEO 1996 105,081 60,000
1995 82,225 30,000
L. John Loomis 1997 $173,077 520,000
President & COO
Dean S. Irwin* 1997 $126,807 160,000
Vice President of Engineering 1996 93,306 80,000
1995 84,750 20,000
</TABLE>
NOTE: Columnar information required by Item 402(a)(2) has been omitted
for categories where there has been no compensation awarded to, earned by or
paid to any of the named executives required to be reported in the table
during 1995, 1996 or 1997.
*As of March 21, 1998 Mr. Irwin resigned as an employee and will become
a consultant to the Company on technology and patent matters.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
- -------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise or
Name Options/SARs Employees in Base Price Expiration
Granted (#) Fiscal Year ($/Sh) Date
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
William E. Hollis, Chairman & CEO 420,000 31.6% $0.62 Feb. 25, 2007
L. John Loomis, President & COO 280,000 20.4% $0.62 Feb. 25, 2007
240,000 17.5% $1.25 June 20, 2008
Dean S. Irwin, VP Engineering 160,000 11.7% $0.62 Feb. 25, 2007
</TABLE>
26
<PAGE>
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth information with respect to options to
purchase common stock granted to the Company's named executive officers
including: (i) the number of shares of common stock purchased upon exercise
of options in the fiscal year ending December 31, 1997; (ii) the net value
realized upon such exercise; (iii) the number of unexercised options
outstanding at December 31, 1997; and (iv) the value of such unexercised
options at December 31, 1997.
Item 10. Executive Compensation (cont.)
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
DECEMBER 31, 1997 OPTION VALUES
<TABLE>
<CAPTION>
Number of Value of Unexercised In-
Unexercised the-Money options at
Shares Options at Dec. 31, 1997
Name Acquired Valued Dec. 31, 1997 ($)
On Exercise Realized (#) Exercisable/ Exercisable/
(#) ($) Unexercisable Unexercisable
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
William E. Hollis, Chairman & CEO 0 0 0/420,000 $0/$133,350
L. John Loomis, President & COO 0 0 0/520,000 $0/$88,900
Dean S. Irwin, VP Engineering 0 0 0/160,000 $0/$57,150
</TABLE>
COMPENSATION OF DIRECTORS. Non-management directors are paid $500 for
each board meeting attended. Directors who are also full-time employees are
not paid Directors' fees.
EMPLOYMENT CONTRACTS. In 1996, the Company entered into a three-year
employment agreement with Mr. HOLLIS. The Company entered into a two-year
employment agreement with Mr. Loomis in February 1997. Effective September 19,
1997 both employment contracts were extended for two years.
27
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of March 12, 1998 the name and address
of each director and executive officer who owns shares of common stock and
each other person known by the Company to own beneficially more than 5% of
the Company's outstanding shares of common stock and the number of shares
owned by all directors and officers of the Company, as a group:
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS (1)
---------------- -------------------- ----------
<S> <C> <C>
Raymond L. Bauch .......................... 2,416,939(2) 22.9%
14 Office Drive Park, Suite 1
Palm Coast, FL 32137
Jalcanto, Ltd. ............................ 1,067,500(3) 10.1%
c/o Wynchwood Trust Ltd.
3 Castle St.
Castletown
Isle of Man, British Isles
Sabotini, Ltd. ............................ 1,067,500(4) 10.1%
c/o Wynchwood Trust Ltd.
3 Castle St.
Castletown
Isle of Man, British Isles
William E. Hollis ........................ 50,375 .48%
8-C Commercial Blvd.
Novato, CA 94949-6125
Michael H. Burney ........................ 0 *
424 Ninth Street
Santa Monica, CA 90402
Dean S. Irwin ............................ 6,000 *
8-C Commercial Blvd.
Novato, CA 94949-6125
Lawrence J. Matteson ..................... 0 *
5 Hogan Court
Pittsford, NY 14534
L. John Loomis ........................... 0 *
8-C Commercial Blvd.
Novato, CA 94949-6125
Asa W. Lanum ............................. 0 *
1775 Bay Laurel Drive
Menlo Park, CA 94025
Robert A. Olins (5) ...................... 0 *
14 East 82nd Street
New York, NY 10028
All directors and officers as a group
(7 persons) ......................... 56,375 .54%
</TABLE>
___________________________
* Represents less than 1%
28
<PAGE>
(1) Based upon a total of 10,523,996 shares outstanding as of March 12, 1998.
(2) Includes 28,169 shares held by the Raymond L. Bauch Foundation over which
Mr. Bauch has certain voting and investment power. Mr. Bauch disclaims
beneficial ownership of such shares.
(3) Based solely upon information filed on Schedule 13D by the named
shareholder, to the Company knowledge, Shaun F. Cairns and Paul A. Bell
are the sole directors of the named shareholder. As such, Mr. Cairns
and/or Mr. Bell may be deemed to be the beneficial owner(s) of the shares
of the Company's common stock held by the named shareholder.
(4) Based solely upon information filed on Schedule 13D by the named
shareholder, to the Company's knowledge, Shaun F. Cairns and Paul A. Bell
are the sole directors of the named shareholder. As such, Mr. Cairns
and/or Mr. Bell may be deemed to be the beneficial owner(s) of the shares
of the Company's Common Stock held by the named shareholder.
(5) Excludes shares held by Jalcanto, Ltd. and Sabotini, Ltd., as to which
Mr. Olins serves as an investment advisor. Mr. Olins disclaims
beneficial ownership of such shares.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Other than as described under Item 5 above, there were no transactions
between the Company and other persons during 1997 of the type required to be
disclosed pursuant to Item 404 of Regulation S-B.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits are filed as part of this Form 10-KSB:
Exhibit # Description
--------- -----------
3.1(1) Certificate of Incorporation
3.2(1) By-laws
4.5(8) Form of Debenture
4.6(8) Registration Rights Agreement
10.1(1)* 1991 Stock Option Plan
10.2(1)* Form of Officers and Directors Agreement
10.3(1)* Employee Stock Option Plan
10.4(1)* Director Stock Option Plan
10.5(1) Agreement between Sayett Group, Inc. and InterVision
Systems, Inc. dated March 11, 1994
10.6(2) Agreement and Plan of Reorganization, dated January 26, 1995
10.7(2) Sayett Group, Inc. and WAH-III Technology Subscription and
Stock Purchase Agreement, dated November 25, 1992
10.8(2) Amendment to Subscription and Stock Purchase Agreement,
dated June 29, 1993
10.9(2) Second Amendment to Subscription and Stock Purchase
Agreement, dated April 27, 1994
10.10(2) Stock Purchase Agreement, dated July 19, 1994
10.11(3) Share Purchase Agreements dated July 10, 1996 between
the Company and each of Jalcanto, Ltd. and Sabotini, Ltd.
10.12(4) Agreement and Warrant to Purchase 792,500 Common Shares of
SpatiaLight, Inc. as issued to each of Jalcanto, Ltd.
and Sabotini, Ltd.
10.13(5) Amendment to Share Purchase Agreements dated November 11,
1996 with each of Jalcanto, Ltd. and Sabotini, Ltd.
10.14(6)* Employment Agreement between the Company and William E.
Hollis dated July 1, 1996
10.15(6)* Employment Agreement between the Company and Dean S.
Irwin dated July 1, 1996
29
<PAGE>
10.16(6) Distribution Agreement between SpatiaLight of California
and Meadowlark Optics
10.17(6)* Employment agreement between the Company and L. John
Loomis dated February 17, 1997
10.18(8) Form of Securities Purchase Agreement
10.19* Revised Employment Agreement between the Company and
William E. Hollis dated September 19, 1997
10.20* Revised Employment Agreement between the Company and
L. John Loomis dated September 19, 1997
10.21* Revised Employment Agreement between the Company and
Dean S. Irwin dated September 19, 1997
23.1(6) Consent of Independent Public Accountants
27.1 Financial Data Schedule
__________________
* Designates management contracts and compensatory plans.
(1) Incorporated by reference to the corresponding exhibit filed with the
Company's Registration Statement on Form S-1 filed February 13, 1992, as
amended.
(2) Incorporated by reference to the corresponding exhibit filed with the
Company's Current Report on Form 8-K filed February 7, 1995.
(3) Incorporated by reference to exhibit 10.32 filed with the Company's
Current Report on Form 8-KA filed September 24, 1996.
(4) Incorporated by reference to exhibit 4.5 filed with the Company's Current
Report on Form 8-KA filed September 24, 1996.
(5) Incorporated by reference to exhibit 10.33 filed with the Company's
Current Report on Form 8-KA filed November 11, 1996.
(6) Incorporated by reference to the corresponding exhibit filed with the
Company's Report on Form 10-KSB filed March 31, 1997.
(7) Incorporated by reference to the corresponding exhibit filed with the
Company's Report on Form 10-KSB filed March 31, 1998.
(8) Incorporated by reference to the corresponding exhibit included in
the Company's Report on Form 8-K filed January 8, 1998.
(b) No Form 8-K was filed during the quarter ended December 31, 1997.
30
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
SPATIALIGHT, INC.
Dated: March 31, 1997 By: /s/ William E. Hollis
----------------------------------
William E. Hollis
Chairman of the Board and
Chief Executive Officer
(Chief Financial Officer and
Chief Accounting Officer)
In accordance with the Exchange Act, this Report has been signed below by
the following persons on behalf of the Registrant and in the capacities and
on the dates indicated:
Dated: March 31, 1998 By: /s/ William E. Hollis
----------------------------------
William E. Hollis
Chairman of the Board and
Chief Executive Officer
(Chief Financial Officer and
Chief Accounting Officer)
Dated: March 31, 1998 By: /s/ Lawrence J. Matteson
----------------------------------
Lawrence J. Matteson
Director
Dated: March 31, 1998 By: /s/ Michael H. Burney
----------------------------------
Michael H. Burney
Director
Dated: March 31, 1998 By: /s/ L. John Loomis
----------------------------------
L. John Loomis
President and Chief Operating
Officer
Director
Dated: March 31, 1998 By: /s/ Asa W. Lanum
----------------------------------
Asa W. Lanum
Director
Dated: March 31, 1998 By: /s/ Robert A. Olins
----------------------------------
Robert A. Olins
Director
31
<PAGE>
EXHIBIT 10.19
EMPLOYMENT AGREEMENT
This Employment Agreement is made and entered into by and between
SpatiaLight, Inc. (the "Company") and William E. Hollis ("Hollis") as of
September 19, 1997 (the "Effective Date"). This Employment Agreement
supersedes that agreement between Hollis and the Company dated July 1, 1996,
which agreement shall have no further force or effect.
1. POSITION AND DUTIES:
1.1 Hollis was employed by the Company in the position of
President and Chief Executive Officer in the period from December 1,
1994 through June 20, 1997. Since June 20, 1997 Hollis has been
employed as the Chief Executive Officer of the Company. Hollis has also
held the position of Chairman of The Board of Directors of the Company
("Chairman") since June 20, 1997. Hollis shall continue to be employed
in the position of Chief Executive Officer through the Term and any
Renewal Term as defined in paragraph, below. In this position, Hollis
will continue to report to the Company's Board of Directors (the
"Board").
As Chairman of the Company's Board, Hollis shall continue to be
subject to the provisions of the Company's bylaws and all applicable
general corporation laws relative to his position on the board. In
addition, to the Company's bylaws, as a member of the Board, Hollis
shall also be subject to the statement of powers, both specific and
general, as set forth in the Company's Articles of Incorporation.
1.2 Hollis agrees to devote his full business time, energy
and skill to his duties at the Company. These duties shall include, but
not be limited to, all duties consistent with Hollis' position, as well
as any other duties that may be assigned to Hollis from time to time by
the Board.
2. COMPENSATION:
2.1 BASE SALARY: Hollis has been and will continue to be
paid an annual salary of $120,000, less applicable withholding, in
accordance with the Company's normal payroll procedures. Hollis' salary
will be reviewed by the Board on an approximately annual basis, and may
be subject to adjustment based upon various factors including, but not
limited to, Hollis' performance and the Company's profitability. In any
event, upon the occurrence of the earlier of: (i) January 1, 1998; or
(ii) an equity financing in which the Company sells equity securities of
the Company in an amount not less than Three Million Dollars
($3,000,000.00), Hollis' salary shall be increased to at least $200,000
per year.
2.2 PERFORMANCE BONUS PLAN: Hollis will be eligible to participate in
the Company's performance bonus plan (the "Bonus Plan"), which currently
provides for a bonus of twenty (20) percent of salary upon achievement of
pre-established goals. Under the Bonus Plan, all bonuses, if earned, are
paid at the end of the fiscal year. Any bonus will be governed by the terms
of the Company's standard Bonus Plan in effect at the time.
2.3 EQUITY STAKE: The Board has previously approved the issuance to
Hollis of an option to purchase a total of 420,000 shares of the Company's
common stock (the "Options") in accordance with the Company's Stock Option
Plan (the "Plan"). The Plan provides that fifty percent of the options vest
upon the completion of one year's service and the remaining fifty percent of
the options vest upon completion of the second year's service. Upon the
execution of this Agreement the Options shall be amended to provide that in
the event of a Change of Control of the Company, all of the options issued
pursuant to the Options shall become fully vested as of the date of the
Change in Control. A "Change of Control" is defined herein as a transaction
or a series of related transactions resulting in the sale of all or
substantially all of the Company'' assets or a merger or consolidation, or
sale or transfer of securities, which results in any entity which does not
currently hold any of the outstanding voting securities of the Company (as
determined immediately prior to such merger or consolidation or sale or
transfer of stock) owning, directly or indirectly, thirty-three percent or
more of the beneficial interest in the outstanding voting securities of the
Company or the surviving corporation that controls the Company or of such
surviving
<PAGE>
corporation's parent corporation (determined immediately after such merger or
consolidation or sale or transfer of stock). The stock option agreements
establishing the Options shall be amended to reflect this additional
provision, and Hollis agrees to execute such amended stock option
agreement(s).
2.4 ADDITIONAL OPTIONS: After the occurrence of an equity
financing during the nine months following the Effective Date in which the
Company sells equity securities of the Company in an amount not less than
Three Million Dollars ($3,000,000.00), Hollis shall be granted an additional
stock option to purchase that number of shares of Common Stock determined by
the following formula: the number of shares of the Company times four
percent (4.0%) less the number shares subject to options previously granted
to Hollis. If such formula produces a negative number, then Hollis shall not
receive this Additional Option. The exercise price of this option shall be
the fair market value at the time of the grant of the option. This
Additional Option shall be immediately exercisable.
2.5 BENEFITS: Hollis will be entitled to continue to participate
in all of the Company's benefit plans, as those plans may change from time to
time, on the same terms as all other employees of the Company. However, in
the event that the Company does not provide long term disability insurance to
its other employees, the Company shall also reimburse Hollis for the cost of
his obtaining long term disability insurance.
3. TERM OF EMPLOYMENT: Hollis' employment with the Company pursuant to
this Agreement is for a period from the Effective Date through July 1, 2001,
subject to the provisions regarding termination set forth below (the
"Term"). If neither party gives the other written notice of termination or a
desire to change the provisions herein, on or before the thirtieth (30th) day
prior to the expiration of the Term, this Agreement shall be automatically
renewed for an additional one (1) year period (the "Renewal Term").
Thereafter, if neither party gives the other written notice of termination or
a desire to change the provisions herein, on or before the thirtieth (30th)
day prior to the expiration of each Renewal Term, this Agreement shall be
renewed for an additional one (1) year period.
4. BENEFITS UPON TERMINATION: Notwithstanding paragraph 3 above, Hollis'
employment may be terminated by Hollis or the Company at any time, with or
without notice and with or without cause. In the event that either party
elects to terminate this Agreement prior to the expiration of the contract
term, benefits shall be provided as set forth below:
4.1 VOLUNTARY TERMINATION: In the event that Hollis voluntarily
resigns from his employment with the Company, or in the event that Hollis'
employment terminates as a result of his death or disability, Hollis shall be
entitled to no compensation or benefits from the Company other than those
earned under paragraph 2 above through the date of his termination. In the
event that Hollis voluntarily resigns from his employment with the Company he
shall simultaneously resign from any position he holds on the Company's Board.
4.2 INVOLUNTARY TERMINATION: In the event of the termination of Hollis'
employment by the Company for the reasons set forth below, Hollis shall be
entitled to the following:
a. TERMINATION FOR CAUSE: If Hollis' employment is terminated by
the Company for cause as defined below, Hollis shall be entitled to no
compensation or benefits from the Company other than those earned under
paragraph 2 through the date of Hollis' termination.
For purposes of this Agreement, a termination "for cause" occurs if Hollis'
employment is terminated for any of the following reasons:
(1) theft, dishonesty, or falsification of any employment or
Company records;
(2) conviction of a felony or any act involving moral
turpitude;
(3) consistent poor performance, as determined by the Board
in its sole discretion;
(4) improper disclosure of the Company's confidential or
proprietary information;
(5) any intentional act by Hollis that has a material
detrimental effect on the Company's reputation or
business;
<PAGE>
(6) the Company ceases or fails to continue to do business; or
(7) any material breach of this Agreement, which breach, if
curable, is not cured within thirty (30) days following
written notice of such breach from the Company.
b. TERMINATION FOR OTHER THAN CAUSE: If Hollis' employment is
terminated by the Company for any reason other than cause, Hollis shall be
entitled to continuation of Hollis' salary and all other benefits, including,
but not limited to, vesting in all stock options, for six months following
the termination of Hollis' employment.
5. CONFIDENTIAL AND PROPRIETARY INFORMATION: As a condition of Hollis;
employment with the Company, Hollis has signed the Company's standard form of
proprietary information and assignment of inventions agreement and Hollis has
and agrees to continue to comply with the terms of that agreement.
6. DISPUTE RESOLUTION: In the event of any dispute or claim relating to or
arising out of this Agreement (including, but not limited to, any claims of
breach of contract, wrongful termination or age, sex, race or other
discrimation), Hollis and the Company agree that all such disputes shall be
fully and finally resolved by binding arbitration conducted by the American
Arbitration Association in San Francisco, California in accordance with its
National Employment Dispute Resolution rules, as those rules are currently in
effect (and not as they may be modified in the future). Hollis acknowledges
by accepting this arbitration provision he is waiving any right to a jury
trial in the event of such a dispute. Provided, however, that this
arbitration provision shall not apply to any disputes or claims relating to
or arising out of the misuse or misappropriation of trade secrets or
proprietary information.
7. ATTORNEYS' FEES: The prevailing party shall be entitled to recover from
the losing party its attorneys' fees and costs incurred in any action brought
to enforce any right arising out this Agreement.
8. INTERPRETATION: This Agreement shall be interpreted in accordance with
and governed by the laws of the State of California.
9. ASSIGNMENT: In view of the personal nature of the services to be
performed under this Agreement by Hollis, Hollis shall not have the right to
assign or transfer any of his obligations under this Agreement.
10. ENTIRE AGREEMENT: This Agreement, along with any agreements referred to
in paragraph 2, relating to stock options and paragraph 5, relating to
proprietary information and assignment of inventions, sets forth the entire
agreement between Hollis and the Company regarding the terms and conditions
of Hollis' employment, and supersedes all prior negotiations, representations
or agreements between Hollis and the Company regarding Hollis' employment,
whether written or oral.
11. NO REPRESENTATIONS: Hollis acknowledges that his is not relying, and
has not relied, on any promise, representation or statement made by or on
behalf of the Company that is not set forth in this Agreement.
12. MODIFICATION: This Agreement may only be modified or amended by a
supplemental written agreement signed by Hollis and an authorized member of
the Board.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year written below.
SPATIALIGHT, INC.
DATE:__________________________ By:______________________________
Its:_____________________________
DATE:__________________________ _________________________________
William E. Hollis
<PAGE>
EXHIBIT 10.20
AMENDMENT TO EMPLOYMENT AGREEMENT
This agreement is made and entered into by and between SpatiaLight, Inc.
(the "Company") and L. John Loomis ("Loomis") as of September 19, 1997 (the
"Effective Date") with reference to the following facts:
A. On or about February 17, 1997, Loomis and the Company entered into
an Employment Agreement, pursuant to which Loomis was initially
employed by the Company as its Senior Executive Vice President and
Chief Operating Officer, and later as its President and Chief
Operating Officer (the "Employment Agreement");
B. The Company and Loomis now wish to amend the Employment Agreement as
follows:
AMENDMENTS
1. Paragraph 2.3 of the Employment Agreement shall be struck in its
entirety and replaced with the following language:
2.3 EQUITY STAKE: The Board has previously approved the issuance
to Loomis of two separate options to purchase a total of
520,000 shares of the Company's common stock (the "Options") in
accordance with the Company's Stock Option Plan (the "Plan").
The Plan provides that fifty percent of the options vest upon
the completion of one year's service and the remaining fifty
percent of the options vest upon the completion of the second
year service. However, in the event that the Company files
for bankruptcy protection pursuant to the United States
Bankruptcy Code, the parties have agreed that all of the
options issued pursuant to the Option shall become fully vested
as of the date the Company files its Petition for Bankruptcy
Protection. The Options shall be further amended to provide
that in the event of a Change of Control of the Company, all of
the options issued pursuant to the Options shall become fully
vested as of the date of the Change in Control. A "Change in
Control" is defined herein as a transaction or a series of
related transactions resulting in the sale of all or
substantially all of the Company's assets or a merger or
consolidation, or sale or transfer of securities, which results
in any entity which does not currently hold any of the
outstanding voting securities of the Company (as determined
immediately prior to such merger or consolidation or sale or
transfer of stock) owning, directly or indirectly, thirty-three
percent or more of the beneficial interest in the outstanding
voting securities of the Company or the surviving corporation
that controls the Company or of such surviving corporation's
parent corporation (determined immediately after such merger or
consolidation or sale or transfer of stock). Except as
otherwise provided herein, the Option shall be subject to the
terms and conditions of the Company's stock option plan and the
Company's standard form of stock option agreement, as amended
in accordance with this Agreement, which Loomis shall be
required to sign as a condition to receiving the Options as
provided herein.
ADDITIONAL OPTIONS: After the occurrence of an equity
financing during the nine months following the Effective Date
in which the Company sells equity securities of the Company in
an amount not less than Three Million Dollars ($3,000,000.00),
Loomis shall be granted an additional stock option to purchase
that number of shares of Common Stock determined by the
following formula: the number of shares of the Company times
four and one-third percent (4.33%) less the number of shares
subject to options previously granted to Loomis. If such
formula produces a negative number, then Loomis shall not
receive this Additional Option. The exercise price of this
option shall be
<PAGE>
the fair market value at the time of the grant of the option.
This Additional Option shall be immediately exercisable.
2. Paragraph 3 of the Employment Agreement shall be struck in its
entirety and replaced with the following language:
3. TERM OF EMPLOYMENT: Loomis' employment with the Company pursuant to
this Agreement is for a five year period, commencing on the
Commencement Date, subject to the provisions regarding termination
set forth below (the "Term"). If neither party gives the other
written notice of termination or a desire to change the provisions
herein, this Agreement shall be automatically renewed for an
additional one (1) year period (the "Renewal Term"). Thereafter, if
neither party gives the other written notice of termination or a
desire to change the provisions herein, on or before the thirtieth
(30th) day prior to the expiration of each Renewal Term, this
Agreement shall be renewed for an additional one (1) year period.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
and year written below:
SPATIALIGHT, INC.
Date:_____________________ By:__________________________________
Its:_________________________________
Date:_____________________ _____________________________________
L. John Loomis
<PAGE>
EXHIBIT 10.21
EMPLOYMENT AGREEMENT
This Employment Agreement is made and entered into by and between
SpatiaLight, Inc. (the "Company") and Dean Irwin ("Irwin") as of September
19, 1997 (the "Effective Date"). This Employment Agreement supersedes that
agreement between Irwin and the Company dated July 1, 1996, which agreement
shall have no further force or effect.
A. POSITION AND DUTIES:
1.1 Irwin has been employed by the Company in the position of Vice
President, Engineering since May 19, 1997. Irwin shall continue to be
employed in this position through the Term and any Renewal Term as defined in
paragraph 3, below. In this position, Irwin will continue to report to the
President and Chief Operating Officer.
1.2 Irwin agrees to devote his full business time, energy and
skill to his duties at the Company. These duties shall include, but not be
limited to, all duties consistent with Irwin's position, as well as any other
duties that may be assigned to Irwin from time to time by the President
and/or the Board.
2. COMPENSATION:
2.1 BASE SALARY: Irwin will be paid an annual salary of $115,000,
less applicable withholding, in accordance with the Company's normal payroll
procedures. Irwin's salary will be reviewed by the Board on an approximately
annual basis, and may be subject to adjustment based upon various factors
including, but not limited to, Irwin's performance and the Company's
profitability. In any event, upon the occurrence of the earlier of: (i)
January 1, 1998; or (ii) an equity financing in which the Company sells
equity securities of the Company in an amount not less than Three Million
Dollars ($3,000,000.00), Irwin's salary shall be increased to at least
$135,000 per year.
2.2 PERFORMANCE BONUS PLAN: Irwin will be eligible to participate
in the Company's performance bonus plan (the "Bonus Plan"), which currently
provides for a bonus of twenty (20) percent of salary upon achievement of
pre-established goals. Under the Bonus Plan, all bonuses, if earned, are
paid at the end of the fiscal year. Any bonus will be governed by the terms
of the Company's standard Bonus Plan in effect at the time.
2.3 EQUITY STAKE: The Board has previously approved the issuance
to Irwin of two separate options to purchase a total of 160,000 shares of the
Company's common stock (the "Options") in accordance with the Company's Stock
Option Plan (the "Plan"). The Plan provides that fifty percent of the
options vest upon the completion of one year's service and the remaining
fifty percent of the options vest upon completion of the second year's
service. Upon the execution of this Agreement the Options shall be amended
to provide that in the event of a Change of Control of the Company, all of
the options issued pursuant to the Options shall become fully vested as of
the date of the Change in Control. A "Change of Control" is defined herein
as a transaction or a series of related transactions resulting in the sale of
all or substantially all of the Company's assets or a merger or
consolidation, or sale or transfer of securities, which results in any entity
which does not currently hold any of the outstanding voting securities of the
Company (as determined immediately prior to such merger or consolidation or
<PAGE>
sale or transfer of stock) owning, directly or indirectly, thirty-three
percent or more of the beneficial interest in the outstanding voting
securities of the Company or the surviving corporation that controls the
Company or of such surviving corporation's parent corporation (determined
immediately after such merger or consolidation or sale or transfer of stock).
The stock option agreements establishing the Options shall be amended to
reflect this additional provision, and Irwin agrees to execute such amended
stock option agreements.
ADDITIONAL OPTIONS: After the occurrence of an equity financing during
the nine months following the Effective Date in which the Company sells
equity securities of the Company in an amount not less than Three Million
Dollars ($3,000,000.00), Irwin shall be granted an additional stock option to
purchase that number of shares of Common Stock determined by the following
formula: the number of shares of the Company times one and one-third percent
(1.33%) less the number of shares subject to options previously granted to
Irwin. If such formula produces a negative number, then Irwin shall not
receive this Additional Option. The exercise price of this option shall be
the fair market value at the time of the grant of the option. This Additional
Option shall be immediately exercisable.
2.5 BENEFITS: Irwin will be entitled to continue to participate
in all of the Company's benefit plans, as those plans may change from time to
time, on the same terms as all other employees of the Company.
3. TERM OF EMPLOYMENT: Irwin's employment with the Company pursuant
to this Agreement is for a period from the Effective Date through July 1,
2000, subject to the provisions regarding termination set forth below (the
"Term"). If neither party gives the other written notice of termination or a
desire to change the provisions herein, on or before the thirtieth (30th) day
prior to the expiration of the Term, this Agreement shall be automatically
renewed for an additional one (1) year period (the "Renewal Term").
Thereafter, if neither party gives the other written notice of termination or
a desire to change the provisions herein, on or before the thirtieth (30th)
day prior to the expiration of each Renewal Term, this Agreement shall be
renewed for an additional one (1) year period.
4. BENEFITS UPON TERMINATION:
Notwithstanding paragraph 3 above, Irwin's employment may be terminated
by Irwin or the Company at any time, with or without notice and with or
without cause. In the event that either party elects to terminate this
Agreement prior to the expiration of the contract term, benefits shall be
provided as set forth below.
4.1 VOLUNTARY TERMINATION: In the event that Irwin voluntarily
resigns from his employment with the Company, or in the event that Irwin's
employment terminates as a result of his death or disability, Irwin shall be
entitled to no compensation or benefits from the Company other than those
earned under paragraph 2 above through the date of his termination.
4.2 INVOLUNTARY TERMINATION: In the event of the termination of
Irwin's employment by the Company for the reasons set forth below, Irwin
shall be entitled to the following:
a. TERMINATION FOR CAUSE: If Irwin's employment is
terminated by the Company for cause as defined below, Irwin shall be entitled
to no compensation or benefits from the Company other than those earned under
paragraph 2 through the date of Irwin's termination.
<PAGE>
For purposes of this Agreement, a termination "for cause"
occurs if Irwin's employment is terminated for any of the following reasons:
(1) theft, dishonesty, or falsification of any
employment or Company records;
(2) conviction of a felony or any act involving moral
turpitude;
(3) consistent poor performance, as determined by the
Board in its sole discretion;
(4) improper disclosure of the Company's confidential or
proprietary information;
(5) any intentional act by Irwin that has a material
detrimental effect on the Company's reputation or business;
(6) the Company ceases or fails to continue to do
business; or
(7) any material breach of this Agreement, which breach,
if curable, is not cured within thirty (30) days following written notice of
such breach from the Company.
b. TERMINATION FOR OTHER THAN CAUSE: If Irwin's employment
is terminated by the Company for any reason other than cause, Irwin shall be
entitled to continuation of Irwin's salary and all other benefits, including,
but not limited to, vesting in all stock options, for six months following
the termination of Irwin's employment.
5. CONFIDENTIAL AND PROPRIETARY INFORMATION: As a condition of
Irwin's employment with the Company, Irwin has signed the Company's standard
form of proprietary information and assignment of inventions agreement and
Irwin has and agrees to continue to comply with the terms of that agreement.
6. DISPUTE RESOLUTION: In the event of any dispute or claim relating
to or arising out of this Agreement (including, but not limited to, any
claims of breach of contract, wrongful termination or age, sex, race or other
discrimination), Irwin and the Company agree that all such disputes shall be
fully and finally resolved by binding arbitration conducted by the American
Arbitration Association in San Francisco, California in accordance with its
National Employment Dispute Resolution rules, as those rules are currently in
effect (and not as they may be modified in the future). Irwin acknowledges
that by accepting this arbitration provision he is waiving any right to a
jury trial in the event of such dispute. Provided, however, that this
arbitration provision shall not apply to any disputes or claims relating to
or arising out of the misuse or misappropriation of trade secrets or
proprietary information.
7. ATTORNEYS' FEES: The prevailing party shall be entitled to
recover from the losing party its attorneys' fees and costs incurred in any
action brought to enforce any right arising out of this Agreement.
8. INTERPRETATION: This Agreement shall be interpreted in accordance
with and governed by the laws of the State of California.
9. ASSIGNMENT: In view of the personal nature of the services to be
performed under this Agreement by Irwin, Irwin shall not have the right to
<PAGE>
assign or transfer any of his obligations under this Agreement.
10. ENTIRE AGREEMENT: This Agreement, along with any agreements
referred to in paragraph 2, relating to stock options and paragraph 5,
relating to proprietary information and assignment of inventions, sets forth
the entire agreement between Irwin and the Company regarding the terms and
conditions of Irwin's employment, and supersedes all prior negotiations,
representations or agreements between Irwin and the Company regarding Irwin's
employment, whether written or oral.
11. NO REPRESENTATIONS: Irwin acknowledges that he is not relying, and
has not relied, on any promise, representation or statement made by or on
behalf of the Company that is not set forth in this Agreement.
12. MODIFICATION: This Agreement may only be modified or amended by a
supplemental written agreement signed by Irwin and an authorized member of
the Board.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year written below.
SPATIALIGHT, INC.
Date:________________ _________ By:___________________________________
Its:__________________________________
Date:________________ _________ ______________________________________
Dean Irwin
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